Using the P/E ratio approach to valuation, calculate the value of a share of stock under the following conditions:

• the investor's required rate of return Is 13 percent, the expected level of earnings at the end of this year (Ey) is $4,
• the firm follows a policy of retaining 50 percent of its earnings,
• the return on equity (ROE) is 14 percent, and
• similar shares of stock sell at multiples of 8.333 times earnings per share.

Now show that you get the same answer using the discounted dividend model.

a. The stock price using the P/E ratio valuation method is $

(Round to the nearest cent.)

(Related to Checkpoint 10.2) (Relative valuation of common stock) Using the Pit ratio approach to valuation, calcutate the value of a share of stock under the followng conditions - the investors required rate of retum is 13 percent, - the expected level of eamings at the end of this yoar (E1) is $4, - the firm follows a policy of retiining 50 peronet of ils earnings, - the return on equity (ROE) is 14 percent, and - similar shares of stock sell at multiples of 8.333 times eamings por share. Now show that you get the same answer using the discounted dividend model. a. The stock price using the P/E ratio valuation method is s (Round to the nearest cent)